On 13 December 2022, the European Parliament reached a provisional agreement with the Council of the EU to implement an EU Carbon Border Adjustment Mechanism (“CBAM”) from 1 October 2023.
The CBAM will apply a price on emissions to a wide range of goods comprised in the following categories which are imported into the customs territory of the EU.
- Iron and steel including some downstream products (e.g., including screws, bolts)
One of the controversial issues that the EU needs to finalize during the transition period before the official implementation of CBAM put in force is whether and to what extent the downstream industries such as automobile-manufacturing should be covered in the scope.
China’s car export is growing rapidly and ranked the world’s second largest country for automobile export behind Japan from Jan.to Aug. of 2022, according to the data released by the Chinese customs. Although only two European countries (Germany and Belgium) are among the top ten automobile export destinations, Chinese brands such as BYD, Nio are actively developing their EV market shares in Europe. It is possible that the Chinese EV brands will have to pay more attention to the decarbonization of their upstream material such as iron and steel, which account for ~20% of the supply chain carbon emissions of EV. Notably, foreign car makers have already started strategic deployment of green steel supply chain in China. Both BMW and Mercedes-benz have recently locked up green steel cooperation memorandums with the two key steel makers in China for their manufacturing bases in China:
Source: China Daily
Source: State Statistics Bureau, Azure
As the largest steel production and consumption country in the world, China contributes over 50% of the total crude steel production and over 60% of the industry’s carbon emissions globally. While there are some doubts on the design and the effectiveness of the CBAM, the rules are a shove in the right direction to help the massive Chinese metal industry follow a greener pathway.